Friday, October 28, 2011

Money is only paper, nickels and dimes

We know (or have been told) that America is in the Red and China is in the Green; financially speaking of course. Same goes for the countries in the Euro zone: some are in the green, others in the red. In other words, some have true money while others only have printed money.

Not being a financial person I am fascinated by the machinations of the money energy!?

Take the following speculation: A country has a huge deficit base. To overcome its repayment responsibility, it raises its deficit base so as to allow for the printing of more money which also allows for the borrowing of more money.

The monies of a country is regulated and issued by its Reserve Bank.

The company that I work for gets its operating money from a Commercial Bank who in turn is supplied by the Reserve Bank.

Does this not imply that, because of the high deficit base of the country, the printed money I receive as a salary is not worth much if at all (here I am not referring to the inflation factor)?

How does negative money turn into a positive entity just because it exchanged hands?If America’s negative money is of a larger proportion than that of China’s positive money, does that not mean that the negative difference turns China’s real money into baseless paper money?

Similarly, I understand that SA has positive reserves that can be used to offset its national deficit base. Money that can be used to bail out the economy should the negative offshore effects of all the negative ‘developed’ economies reach our shores. This is good news, yes?

But does not the same mathematical principle apply: if a negative is higher than the positive, the difference is still negative? Thus, are we not fooling ourselves into believing that all is Ok in the land of finances?

What intrigues me further is the fact that when Uganda’s Idi Amin tried the same stunt i.e. he wanted to print more money, he was shot down by the developed world!?

But I must be missing something for investors (people of whom I presume know what they are doing) are still throwing their money around...and getting richer by the day (an interesting aphorism seeing that it is mostly negative paper money that they are playing with.)